Yesterday’s fiscal statement analysis replaced my usual Wednesday news and music blog post, so that appears today. I have hardly any time today anyway as the commitments associated with that statement are queuing up. So, today I want to reflect on the sanity in Japan and the ECB before some Duke. So we now have an experiment underway again. Most central banks are buckling under the pressure the financial markets are putting on them to raise interest rates. But the Bank of Japan, and to a lesser extent the ECB are not. We will see how that plays out. I think the Bank of Japan has its finger on the pulse and the other central banks are going down the wrong path.
The Bank of Japan holds its cool and demonstrates something important to the World – again
With the US Federal Reserve losing its cool along with the Bank of England – thinking they can solve rising inflation arising from boats not getting goods to where they are in demand and workers not being able to work because they are sick by increasing interest rates, it is good to see that the Bank of Japan is resisting the same pressures from financial markets.
The markets are pressuring central banks to life interest rates because that will help them profit from bets they have made on that happening.
On Monday (March 29, 2022), the Bank of Japan demonstrated it was not backing off defending its yield cap policy.
It entered the bond markets and offered to buy unlimited amounts of 10-year Japanese government bonds.
Japan is also facing the rising cost of imports as a result of the pandemic and the extra supply problems arising from the Ukraine War.
The Bank of Japan released this announcement – Addition to the Auction Schedule and Increase in the Amounts of Outright Purchases of Japanese Government Bonds (March 30, 2022) – where they outlined their plan to continue their bond buying program and:
… increase the amounts of purchases …
Go figure you Monetarists out there demand interest rate rises.
The Bank has told the markets it will be buying unlimited amounts of bonds over this week to maintain control over the 10-year JGB yield.
They intended to stop the yield rising above 0.25 per cent (its target is 0 per cent).
The ‘markets’ as usual are claiming the Bank will lose its nerve.
They are also buying up longer term bonds to stop the markets skewing the longer maturity yields.
The Bank is maintaining short-term rates at -0.1 per cent and the 10-year bond yield at 0 per cent.
The 10-year bond yield this morning (Thursday) four days in to the increased purchases was at 0.22 per cent and falling.
The Governor of the Bank Kuroda told the press last week that the small depreciation in the yen that is occuring at present was “generally positive” for the Japanese exporters.
So we now have an experiment under way again.
Most central banks are buckling while the Bank of Japan, and to a lesser extent the ECB are not.
All nations covered by those central banks are facing the same supply-side cost pressures and the fallout from the Ukraine War.
Let’s see how the different policy approaches play out.
For the record, I think the Bank of Japan is once again demonstrating a superior capacity to conduct macroeconomic policy.
It is supporting a fiscal policy stance that cares about keep unemployment low and maintaining first-class public services.
Levy Summer School – June 2022
While the details are still being worked out, I can confirm that I will be teaching at the Levy Summer School in the US in June this year (between June 13-18).
This is the first international trip I have been willing to make since Covid. But the Levy work is important and I always will try to support the group there.
As more details emerge, I will pass them on.
It will be good to meet up with people again (with our masks on) but I don’t think I will be doing any partying!
Music – The Duke with John Coltrane
This is what I have been listening to while working this morning.
When I was young I heard this music on the radio and my parents had some records that I used to listen to when I played truant from school and sought the peace of what in those days was called the radiogram – a sort of cheap hi fi system that working class folk had to play records and listen to the radio.
And, when I was in a position to start buying records, this was one of the earliest purchases.
The Duke wrote the music in 1935 and lyrics were added later.
John Coltrane’s tenor on this album is one of the best expositions there is.
The other players on this song were:
1. Aaron Bell – Double Bass. He was in the Duke Ellington Orchestra during the period this album was recorded but left soon after to play with Dizzy Gillespie. He later received a PhD in Education at Columbia University.
2. Elvin Jones – Drums – who was a major contributor to the modal jazz and post-bop jazz era who was playing with John Coltrane’s band during the period this album was recorded.
The question I always used to ask myself when I was young was how can four people make such sublime sounds together.
The way this song shifts between the minor key to the major key for the middle section (interlude) is the stuff of magic!
That is enough for today!
(c) Copyright 2022 William Mitchell. All Rights Reserved.